collega - Károli Gáspár Református Egyetem

order to bring the taxpayer up to the
subsistence level.
The proponents of flat taxation
argue that it is simple and efficient,
and that may be the key reason
behind Eastern Europe’s dramatic
growth. Others believe it is more
readily explained by a low starting
base and large inward investment.
Flat tax has been adopted, for example,
in Estonia, Lithuania, Latvia,
Russia, Serbia, Ukraine, Slovakia,
Georgia, Romania, and Macedonia,
furthermore Greece, Croatia, and the
Czech Republic are planning to
introduce flat taxes.
On the other hand, many people
say that flat tax is not a fair tax, since
flat taxes usually do not tax all
income at the same rate, despite also
only one single rate of tax could be
involved as well on all income, but it
is not common at all. For instance, in
the United States usual flat tax proposals
exempt certain forms of
income from tax, therefore the rate of
tax on those privileged forms of
income is zero percent. Additionally,
income derived from capital (dividends,
interest, or capital gains)
might be exempted from tax at the
individual level. As a result, the flat
tax becomes a two rate system: zero
on income from capital and nominal
rate on wage income.
Therefore, it is said by many tax
theorists that flat taxes shall not be
used in advanced economies, but a
progressive tax system with graduated
tax shall be adopted instead on
household incomes and corporate
profits.
A progressive tax is levied so that
the tax rate increases as the amount
to which the rate is applied increases.
Progressive taxation can be applied
to any type of tax, but it is applied
mostly to income taxes, where people
with a higher level of income pay a
higher percentage of their income in
tax than those taxpayers, who earn
less income.
Theorists in almost every discipline
have entered the progressivity
debate, proposing a variety of differdr.
Ercsey Zsombor
However, the measurement of
subsistence level may differ according
to culture, geographical and economic
conditions of the country and
therefore the consumer price level
thereof, furthermore according to
the conditions and situation of each
individual (such as talents, abilities,
marital status, family size, age, etc.).
Also, if subsistence includes more
than just material to survive with,
then it is a social construct, not a fact
of nature.
The minimum of subsistence is
also a figure that shows the minimum
level of satisfying needs on the
lowest level that is still acceptable for
the society. It can be determined
from two aspects: from the side of
the particular needs, or relatively, by
correlating to the average life standards
of the population through consumption
data. These are usually
family categories, since people satisfy
a great deal of their needs within
their households and families. This
shall be taken into account when the
exemption rates are determined. 6
Based on this level of subsistence,
and the related tax exemption, it is
common among tax theorists to
divide society into two groups: relatively
wealthy individuals who pay
taxes, and poor individuals who are
excluded from tax payment obligation.
7
However, in relation to tax payment
obligation there is a debate
regarding the fair type of tax systems.
Basically two major systems
may be used: flat tax (an income tax
having a single rate for all taxpayers
regardless of income level and type)
and progressive tax (a tax that takes
a larger percentage from the income
of high-income people than it does
from people with low-income).
Flat Tax and Progressive Tax
The basis of flat rate taxation, the
principle that fairness requires all
taxpayers to pay the same percentage
of income, could be made compatible
with exemptions by invoking
another principle, namely that no
one should be required to pay taxes
until the basic subsistence needs
have been met by the taxpayer and
his family. Every individual shall
contribute to well-being through
taxes of community after meeting his
own subsistence needs and that of
his family. This principle implies
that there is no ability to pay until
subsistence needs have been met.
Besides, it must be admitted additionally
that demands of fairness can
not be satisfied just by imposing the
same rate on everyone, and this idea
supports that certain exemptions
must be provided. 8
Therefore flat taxes, in accordance
with the above principles, implemented
as well as proposed, usually
exempt from taxation household
income below a statutorily determined
level that is a function of the
type and size of the household. As a
result, such a flat marginal rate is
consistent with a progressive average
tax rate. Otherwise, all income or
consumption is taxed at the same
marginal rate. 9
Over the past half century, the
flat-rate taxation system was supported
by a significant number of
other political philosophers and scientists,
such as Friedrich Hayek,
Ludwig von Mises, Milton
Friedman, John Rawls, Richard
Epstein, Walter Blum, and Harry
Kalven. 10
The exhaustive critique of
progressive taxation considered that
the desirability of exemptions for
low-income taxpayers does not
require any justification, while Juliet
Rhys-Williams developed and later
Milton Friedman proposed in 1962 a
negative income tax for the poor, a
taxation system where income subsidies
are given to persons or families
who are below the poverty line. This
system provides financial aid to
poverty-level individuals and families:
after filing a tax return showing
income below subsistence level,
instead of paying an income tax, the
taxpayer would receive a direct subsidy,
called a negative income tax, in
6 ’Létminimum és társadalmi minimum’ (1991) 6 Esély. Társadalom- és szociálpolitikai folyóirat 84
7 N. C. Staudt, ’The Hidden Costs of the Progressivity Debate’ (1997) 5 Vanderbilt Law Review 922
8 J. F. Coverdale, ’The Flat Tax Is Not a Fair Tax’ [1996] Seton Hall Legislative Journal 285–290
9 http://en.wikipedia.org/wiki/Flat_tax#_ref-0 (downloaded on 30 March, 2007)
10 B. H. Fried, ’The Puzzling Case For Proportionate Taxation’ [Spring 1999] Chapman Law Review 157
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